Consolidated financial statements for the year ended 31 december 2017 Azimut Holding S.p.A.
Consolidated financial statements for the year ended 31 december 2017 Azimut Holding S.p.A. 4 Gruppo Azimut Contents
Company bodies 7
Azimut group's structure 8
Main indicators 10
Management report 13 Baseline scenario 15 Significant events of the year 19 Azimut Group's financial performance for 2017 25 Main balance sheet figures 28 Information about main Azimut Group companies 32 Key risks and uncertainties 36 Related-party transactions 40 Organisational structure and corporate governance 40 Human resources 40 Research and development 41 Significant events after the reporting date 41 Business outlook 42 Non-financial disclosure 43
Consolidated financial statements 75 Consolidated balance sheet 76 Consolidated income statement 78 Consolidated statement of comprehensive income 79 Consolidated statement of changes in shareholders' equity 80 Consolidated cash flow statement 84
Notes to the consolidated financial statements 87 Part A - Accounting policies 89 Part B - Notes to the consolidated balance sheet 118 Part C - Notes to the consolidated income statement 147 Part D - Other information 159
Certification of the consolidated financial statements 170
5 6 Gruppo Azimut Company bodies
Board of Directors Pietro Giuliani Chairman Sergio Albarelli Chief Executive Officer Paolo Martini Co-Managing Director Andrea Aliberti Director Alessandro Zambotti (*) Director Marzio Zocca Director Gerardo Tribuzio (**) Director Susanna Cerini (**) Director Raffaella Pagani Director Antonio Andrea Monari Director Anna Maria Bortolotti Director Renata Ricotti (***) Director
Board of Statutory Auditors Vittorio Rocchetti Chairman Costanza Bonelli Standing Auditor Daniele Carlo Trivi Standing Auditor Maria Catalano Alternate Auditor Luca Giovanni Bonanno Alternate Auditor
Independent Auditors PricewaterhouseCoopers S.p.A.
Manager in Charge of Financial Reporting Alessandro Zambotti
(*) Co-opted with effect from 3 April 2017. The Shareholders confirmed the appointment in their Meeting of 27 April 2017 (*) With effect from 27 April 2017, as per the Shareholders’ Meeting of 28 April 2016 (***) Co-opted on 4 May 2017 to replace Paola Mungo
7 Azimut group's structure
The Azimut Group operates globally in 17 countries and is comprised of the parent company, Azimut Holding S.p.A., and 76 subsidiaries.
Azimut Holding S.p.A.
(Listed:AZM.IM)
AZ Fund AZ International (1999) Holdings (2010) (100% owner by (100%) Azimut Holdings) Luxembourg Luxembourg
Azimut Capital AN Zhong AZ US Holdings AZ Athenaeum Sigma Fund Mgmt New Horizon CM Katarsis CA Management Sgr (AZ) IM (2015) (2013) (2016) (2017) (2011) (2004) (2011) (100%) (100%) (100%) (100%) (51%) (80%) (100%) Italy Hong Kong US Singapore Australia United Arab Emirates Switzerland
Azimut Financial AZ IM HK AZ IM AZ Apice LLC Eskatos CM Insurance (2011) (2011) (2016) (2011) (2015) (100%) (100%) (100%) (70%) (100%) Italy Hong Kong China US Luxembourg
AZ Life Dac AZ Swiss(5) AZ Sestante AZ Brasil Holdings (2003) (2012) (2015) (2013)
Source: company figures updated (100%) (51%) (100%) (100%) to 31/12/2017 Ireland Switzerland Australia Brazil (1): controls the distribution companies M&O Consultoria, Azimut Enterprises Azimut Portföy CGM(3) CGM Sgr Azimut Brasil AZ Quest FuturaInvest and Azimut Brasil (2014) (2011) (2011) (2011) WM Holding(1) (2015) Wealth Management. (2015) (2): controls AZ Sinopro Insurance (100%) (100%) (51%) (100%) (100%) (66%) Planning. Italy Turkey Monaco Italy Brazil Brazil (3): Azimut reached an agreement to acquire the residual 49% with effect from 31/01/2018. Azimut Global AZ Sinopro FP(2) AZ Mèxico Holdings (4): 30% held by Azimut Counseling (2013) Sa de CV Partecipazioni, wholly owned by (2013) (2014) Azimut Holding, and merged into (100%) (51%) (94%) Azimut Capital Management Italy Taiwan Mexico SGR S.p.A., with effect from 01/01/2018, and 19% held by Azimut Financial Insurance (2) Azimut Libera AZ Sinopro SICE Màs Fondos Sa S.p.A. Impresa Sgr (2013) (2014) (2014) (5): controls 37 companies at 31/12/2017. (100%) (100%) (100%) (6): controls SDB Financial Solutions Italy Taiwan Mexico with effect from 8 January 2018.
AZ Andes Spa AZ NGA(5) Asset management (2015) (2014) Distribution
(92%) (52%) Life Insurance Chile Australia Alternatives
8 Gruppo Azimut 1989 Year of incorporation 2004 Year of flotation 50.4 billion Total assets 17 countries Geographical presence 830 Employees 1,638 Financial advisors 6.8 Inflows for 2017 811 milion Revenues for 2017 215 milion Net profit for 2017 15.97 Share price
9 Main indicators
Financial indicators 2011 2012 2013 2014 2015 2016 2017 (in millions of euros) Total income: 326 434 472 552 708 706 811 of which fixed management fees 266 282 322 394 485 519 607 EBIT 90 177 182 193 280 205 278 Net profit for the period 80 161 156 92 247 173 215
Operating indicators 2011 2012 2013 2014 2015 2016 2017 Financial advisors 1,390 1,396 1,477 1,524 1,576 1,637 1,638 Clients 155 160 163 173 185 198 208 thousand thousand thousand thousand thousand thousand thousand Assets in fund management (billions of euro) 14.6 17.5 21.4 26.7 31.2 35.8 40.2 Net inflows (billions of euro) 0.9 1.6 3.1 4.8 4.5 3.5 4.2 Clients' net weighted average performance -6.8% 8.0% 4.2% 4.8% 1.6% 3.6% 2.20%
10 Gruppo Azimut Mutual funds 65% Breakdown of assets under management Discretionary portfolio management 19% at 31 December 2017 AZ Life insurance 14% Advisory 2%
14% 2% 65% 19% Breakdown of assets under management at 31 December 2017
Mutual funds Discretionary portfolios AZ Life Insurance Advisory
11 12 Gruppo Azimut Management Report of the Consolidated financial statements for the year ended 31 december 2017
13 14 Gruppo Azimut Management report of the Azimut Group
Baseline scenario Financial markets and the global economy Background scenario Economic growth was solid in the main advanced and emerging economies; but, however, it was not associated with any pick-up in inflation, which remained weak. Short-term prospects remain favourable, but the risk remains that a downward adjustment of the price of financial assets may slow down the economic activity. Business in the main advanced economies continued to grow in the second half of 2017, with an economic scenario that remained positive in the last few months of the year. In the United States, the most recent figures point to robust growth. In the United Kingdom, private consumption showed signs of revival, with the leading indicators revealing a growth rate for the last quarter of 2017 in line with the average of the first three quarters. In Japan, the most recent economic figures point to an acceleration in economic activity in the fourth quarter of the previous year. In emerging countries, the economic recovery which began in the first half of 2017 continued. In China, growth remained stable in the last few months of the year, after exceeding expectations in the previous quarters. During the summer months, GDP rose in India and Brazil. Inflation in the main advanced economies remained low, slightly above 2% in the United States, while it fluctuated around 0.5% in Japan. The United Kingdom remains an exception, with a 3% increase in prices, assisted by the depreciation of the pound. Finally, inflation remained modest in the main emerging economies. The risks to the world economy remain linked to the possible volatility increase in financial markets, in addition to the sudden escalation of geopolitical tensions, specifically in North Korea, and the uncertainties about the economic policies, which may have a negative effect on the confidence of households and businesses. Although the first phase of Brexit has been agreed, the uncertainties surrounding the structure of the relationship between the two economies remain high. The outcome of the latest meeting between the countries (United States, Canada and Mexico) members of the North American Free Trade Agreement (NAFTA) for its revision makes the future of international trade agreements less predictable. However, the effects of the tax reform in the United States approved on 20 December 2017 (Tax Cuts And Jobs Act), envisaging a decrease in the tax rates for households and businesses, may stimulate global growth.
The conditions on the international financial markets remain relaxed. In the main International financial advanced economies, long-term interest rates rose on the modest levels recorded markets at the end of September. In the Eurozone, the sovereign risk premiums decreased considerably. Stock prices reached historic highs, despite different trends. The euro appreciated against the main currencies and this trend is expected to continue in the short term. In the United States, the yields on the 10-year bonds rose by approximately 20 basis points compared to the end of September 2016 (to 2.6%). The increase mainly
15 Management report of the Azimut Group
took place in the days immediately after the Federal Reserve meeting held on December of the last year. Since the beginning of the fourth quarter, the interest rates on the 10-year German bonds rose by 12 basis points, to 0.58%. In the Eurozone, the sovereign risk premiums benefited from the strengthening of growth and the favourable reaction of market players to the rescheduling of the purchase programme unveiled by the ECB. Since the end of September, the yield differentials between the 10-year government bonds and the corresponding German bonds decreased in Italy, Spain and Belgium (by 25, 22 and 12 basis points, respectively) and, even more significantly, in Portugal (- 71 basis points), as this country benefited from S&P’s upgrading of the sovereign rating to investment grade in September, followed by Fitch’s upgrading in December. They remained almost unchanged in France, while they rose in Ireland (+ 14 basis points) due, in part, to the technical issue related to the benchmark change. Share prices continued to rise in the United States and, to a lesser extent, in the Eurozone. The volatility implied in both markets remained at very low levels. The financial markets of emerging countries recorded different trends, with significant increases in India and Brazil, a modest rise in China and a slight decrease in Russia. Since the end of September, the euro has appreciated against the US dollar by 3.6%, by 1.9% against the yen and by 0.8% against the pound. In nominal effective terms, starting from the end of 2016, the euro appreciated by 8.8%. With respect to derivative markets, traders’ long (buying) positions on the euro prevailed. The positive values of a risk reversal highlight the demand for coverage against the appreciation of the euro. These trends continue to point to an expected appreciation of the euro in the short-term against the US dollar.
The USA US share prices grew considerably and the major indexes repeatedly scored new record highs. Small-caps also set a new record high in the last few days of 2017. Share prices benefited from the increase in the corporate profits which exceeded expectations, the recovery of mergers and acquisitions, and the optimism generated by the expected tax reform which was subsequently implemented. The US Federal Reserve (the “Fed”) continued the gradual normalisation of its monetary policy and announced that it will start reducing the 4,500 billion USD mortgage-backed bonds and securities accumulated as part of quantitative easing programmes. As largely expected, the Fed increased interest rates three times (March, June and December), bringing the fed fund rate within a range of between 1.25% and 1.50%. Furthermore, the central bank confirmed that three more increases will take place in 2018 and two in 2019. Janet Yellen Fed chairwoman’s mandate expires in early 2018. She will be replaced by Jay Powell. The latter is expected to pursue the current policy, envisaging the slow normalisation of interest rates.
16 Gruppo Azimut Europe In the Eurozone, share prices generated considerable earnings during the year, supported by the continuous signs of revival of economic activity. However, despite the double-digit returns, they remained below many other countries. Emmanuel Macron’s victory in France’s presidential elections reassured investors but, in October, the political risks re-emerged when Catalonia was called to vote in the referendum on independence from Spain. Angela Merkel lost ground in Germany’s elections and, only in 2018, she managed to form a coalition government. In sector terms, IT, utility and industry obtained the best performance, while the telecommunication service sector was the only one to lose ground during the year. The economic news highlighted the growth momentum in the Eurozone. After year-on-year growth of 2.1% in the first quarter, the Eurozone’s GDP rose by 2.4% YoY in the second quarter and by 2.6% in the third. The Purchasing Managers’ Indexes (PMI) confirmed the momentum in the fourth quarter. In November, the Ifo Business Climate Index for Germany reached an all-time high for the fifth time this year, while the Economic Sentiment Indicator of the European Commission jumped to a record high since October 2000. In the United Kingdom, share prices also rose (in GBP) and the FTSE 100 Index reached a new high in the last few days of the year. However, UK shares lagged behind those of the Eurozone, against a background of increasing signs of a slowdown in UK’s growth. Prime minister Theresa May’s bet to strengthen UK's negotiating power in the discussions over Brexit, had an incredible boomerang effect when the political elections failed to deliver the absolute majority to the Conservative Party. However, at the end of November, the investors welcomed the announcement that, according to the EU, the Brexit negotiations achieved sufficient progress to move on to the next stage of the discussions. Again in November, inflation jumped to 3%, the maximum level in five years, prompting the Bank of England to raise interest rates for the first time since 2007.
Emerging markets In China, the new Five-Year Plan created stability, although the weakness of the economic figures points to a slowdown in the pace of growth. In India, the economic figures slowly improved after the markets absorbed two fundamental events: the discontinuation of cash and the introduction of a tax on goods and services. The share prices of the main emerging countries showed interesting valuations and should continue to benefit from the excellent performance of the global trade and the depreciation of the US dollar. However, since the expansive economic policy of some economies goes hand in hand with the increase in imbalances, there is still the risk, in particular, of strong and growing personal debts and real estate price inflation.
17 Management report of the Azimut Group
Italy's assets under According to Assogestioni's (Italy’s association of the investment management management market industry) figures, in 2017, the increase in Italy's assets under management continued, with 2,085 billion euro at year end (+7.6% on 1,937 billion euro at 2016 year end) and positive inflows of approximately 97.5 billion euro. In 2017, inflows of collective portfolio management (+78.1 billion euro) exceeded considerably the number of management mandates (+19.4 billion euro). Portfolio management inflows are almost entirely related to institutional portfolio management (+15.4 billion euro), while retail portfolio management recorded a positive, albeit limited, growth (+4.0 billion euro).
At the end of December 2017, Assoreti's (Italy’s association of the sales networks Italy's financial product and service distribution in the financial services industry) survey highlighted a record value for authorised market financial advisor networks: total inflows amounted to 39.2 billion euro, up by 18.9% on the previous year, and was the highest amount the association has ever observed. During the year, the investment decisions strongly supported assets under management products, with net inflows of 35.0 billion euro and up by 89.5% on 2016. Conversely, total assets under custody products, positive at 4.2 billion euro, dropped considerably (14.5 billion euro in 2016). With respect to assets under management, net investments in UCI units prevailed and rose: inflows from collective portfolio management amount to 18.8 billion euro (3.3 billion euro in 2016) and account for 53.8% of net volumes in this segment. The resources are focused on open-ended UCI domiciled abroad, with net volumes of 15.5 billion euro, while Italian open-ended funds are positive for 3.1 billion euro. Inflows from discretionary portfolios also increased with investments totalling 4.2 billion euro (+79.7% on 2016). Specifically, the resources for discretionary funds activities amount to 2.7 billion euro (+93.4%), while net investment volumes in securities management are equal to 1.5 billion euro (+59.4%). During the year, the value of net premiums paid on insurance and social security products amounts to approximately 12.0 billion euro (-6.8% on 2016). Of this amount, 5.4 billion euro is invested in unit-linked policies, 4.6 billion euro in multi-line policies and 1.2 billion euro in traditional life insurance policies. Index-linked policies show a negative balance of 182 million euro. In 2017, the net resources for open-ended UCI generated by the network’s activities amount to 31.7 billion euro, accounting for 41.3% of total net investments in open collective portfolio management (76.7 billion euro). Total financial instruments under custody are negative by 33 million euro: according to the breakdown of figures, purchase orders prevailed on shares (3.1 billion euro) and ETPs (671 million euro), while disinvestments prevailed on government bonds (-1.1 billion euro), bonds (-1.7 billion euro) and certificates (-1.9 billion). Liquidity inflows for 2017 were positive at almost 4.2 billion euro.
18 Gruppo Azimut Significant events of the year
Capitalisation transactions carried out by Azimut Holding S.p.A. 1.1 In 2017, following the Board of Directors' resolutions of 10 March 2016 and 4 The parent company - May 2017, Azimut Holding S.p.A. made a capital injection of 35.7 million euro to Azimut Holding S.p.A. increase the share capital of the subsidiary AZ International Holdings SA in order to finance the Group's international development, as described later on.
The Azimut Group carried out the following transactions during the year through 1.2 its subsidiary AZ International Holdings SA. AZ International Holdings SA Australia The Australian sub-group which, to date, comprises 37 companies, including one, Sigma Funds Management Pty Ltd, authorised to carry out discretionary funds’ activities, had AuM worth 4.3 billion euro at 31 December 2017. In 2017, the following acquisitions were carried out through the Azimut Group's Australian subsidiary AZ Next Generation Advisory Pty Ltd (“AZ NGA”).
Menico Tuck Parrish Financial Services Pty Ltd - On 10 May 2017, AZ NGA entered into an agreement to acquire 100% of Menico Tuck Parrish Financial Services Pty Ltd (“MTP”). The agreement provided for the exchange, to the extent of 49%, of MTP shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash to the founding members. The transaction amounted to approximately 4.8 million A$ (approximately 3.3 million euro) and included both the cash and share exchange portions.
Peters & Partners Pty Ltd - On 12 May 2017, AZ Next Generation Accounting Pty Ltd (“AZ NG Accounting”) (a sub-holding set up on 8 May 2017 by AZ NGA) entered into an agreement to acquire 100% of Peters & Partners (“P&P”). The agreement provides for a swap of P&P shares with AZ NG Accounting shares for a total of approximately 3.9 million A$ (2.7 million euro) and a capital increase subscribed by AZ International Holdings through the subsidiary AZ NGA of roughly 4.1 million A$ (2.8 million euro).
Farrow Hughes Mulcahy Financial Services Pty Ltd - On 24 August 2017, AZ NGA entered into an agreement to acquire 100% of Farrow Hughes Mulcahy Financial Services Pty Ltd (“FHM”). The agreement provides for the exchange, to the extent of 49%, of FHM shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash to the founding members. The transaction amounted to approximately 9.3 million A$ (approximately 6.1 million euro) and included both the cash and share exchange portions. FHM operates through the Australian Financial Services License of its licensee issued by the local regulator (ASIC).
19 Management report of the Azimut Group
Wealthmed Australia Pty Ltd - On 6 September 2017, AZ NGA signed an agreement to acquire 100% of Wealthmed Australia Pty Ltd (“Wealthmed”) and its subsidiaries. The agreement provides for the exchange, to the extent of 49%, of Wealthmed shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash to the founding members. Wealthmed adopts an integrated business model which provides Australian doctors and health specialists with wealth management solutions. It provides its customers with a broad range of financial advisory services, including savings plans, pension advisory services, insurance solutions and financial planning and training. The transaction amounted to approximately 7 million A$ (approximately 4.7 million euro) and included both the cash and share exchange portions.
Dunsford Financial Planning Pty Ltd - On 13 November 2017, AZ NGA entered into an agreement to acquire 100% of Dunsford Financial Planning Pty Ltd (“DFP”). The agreement provides for the exchange, to the extent of 49%, of DFP shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash to the founding members. DFP provides financial planning and advisory services, social security schemes and private pensions, insurance, real estate planning and corporate advisory services. The transaction amounted to approximately 5.6 million A$ (approximately 3.6 million euro) and included both the cash and share exchange portions.
Henderson Maxwell Pty Ltd - On 11 December 2017, AZ NGA signed an agreement to acquire 100% of Henderson Maxwell Pty Ltd (“HM”) and its subsidiaries. The agreement provides for the exchange, to the extent of 49%, of HM shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash to the founding members. The transaction amounted to approximately 11.6 million A$ (approximately 7.6 million euro) and included both the cash and share exchange portions.
The latter acquisitions confirm Azimut’s goal, pursued through the sub-holding AZ NGA, to continue to expand in Australia, in an integrated business model that provides its customers with financial planning and accounting solutions, including savings plans, financial advisory, pension advisory, insurance solutions and strategic financial planning and training.
All the above transactions entail AZ International Holdings SA's progressive repurchase of 49% of the individual companies over the next ten years.
MTP, P&P, FHM, Wealthmed, DFP and HM operate through the Australian Financial Services License of its licensee issued by the local regulator (ASIC). However, the acquisitions were not subject to the local authority's approval.
AZ Sestante Pty Ltd - On 18 April, the option to increase the equity investment in AZ Sestante to 100% was exercised. The Australian company, that acts as a trustee and
20 Gruppo Azimut manager of mutual funds in Australia, was set up to launch and offer funds locally. The transaction amounted to approximately 0.02 million euro.
Switzerland AZ Swiss & Partners S.A. was set up in 2012 and in January 2016 obtained FINMA's (the Swiss Regulatory Authority) approval to operate under license in accordance with the Swiss Collective Investment Schemes Act (CISA) and provide services for collective investment schemes (CISA). Today, AZ Swiss & Partners S.A. manages 14 UCITS and one alternative fund (including 2 in Advisory) and discretionary portfolios for approximately 90 customers. The year-end total assets under management amount is equal to 1.570 billion euro.
SDB Financial Solutions S.A. - On 26 June 2017, AZ Swiss & Partners S.A. (“AZ Swiss”) entered into a binding purchase and sale agreement to acquire 100% of SDB Financial Solutions S.A. (“SDB”). The company will become a subsidiary of AZ Swiss as of 8 January 2018 and will continue to be managed by the current management team. Thanks to this second acquisition and organic growth, AZ Swiss' assets under management topped 2 billion CHF (1.9 billion euro). SDB's valuation is based on a multiple of the 2016 pro-forma profit. In addition to the fixed component, the parties have agreed on a price adjustment linked to the attainment of certain targets over the long term. The closing took place in January 2018, with FINMA's approval and upon the occurrence of some conditions precedent, set out in the purchase and sale agreement.
Dubai The acquisition of 80% of New Horizon Capital Management Ltd (subsequently renamed “AZ New Horizon Ltd”) by AZ International Holdings SA was authorised in Dubai in June 2017 and became effective on 1 July 2017. The company allows to operate locally through a “class 3” license granted by the Dubai Financial Services Authority (“DFSA”). Consequently, it offers a wide range of financial services, including collective investment plans, discretionary portfolios and financial advisory. The consideration of this transaction, including the subsequent capital increase, amounted to approximately 2.6 million euro.
Iran On 9 October 2017, through AZ International Holdings SA, the Azimut Group signed an agreement to acquire 20% of Mofid Entekhab (“Entekhab”), Iran’s largest independent asset management company, member of the Mofid Group and Iran’s main brokerage and financial advisory company. Azimut and Entekhab also entered into a shareholder agreement to develop an onshore financial advisory platform and set up an offshore fund to enable foreign investors to access Iran’s capital market. Entekhab was founded in 2016 and originates from Mofid Securities’ assets under management business line. At the end of September 2017, it managed assets totalling 89 million USD, comprised of six mutual funds and managed deposits. Mofid Securities is a market leader among Iran’s brokerage companies and has over 300,000 customers.
21 Management report of the Azimut Group
2 - Other significant events of the year
Purchases of treasury shares by Azimut Holding S.p.A. As of 7 February 2017, as resolved by the Shareholders in their Ordinary meeting of 28 April 2016, Azimut Holding S.p.A. launched a share buy-back programme in order to subsequently re-sell treasury shares or use them to acquire or exchange equity investments, accumulate the capital stock for the execution of stock options programmes, service the financial instruments convertible into Company's shares or any other useful purpose which increases the value of the Company in compliance with the legislation from time to time in force. The maximum number of shares that could be repurchased on 7 February 2017 was 18,263,710, representing approximately 13% of share capital. Buybacks could be executed in tranches, for a total amount of 25,000,000 euro at the maximum price of 50 euro (only for the first tranche the maximum acquisition price was up to 30 euro). The purchase of the first tranche was completed on 27 February 2017 and involved a total of 1,492,550 treasury shares against a consideration of 24.8 million euro. The second tranche of the purchase was completed on 6 June 2017 for a total of 1,334,000 treasury shares against a consideration of 25 million euro. Finally, the third tranche of the purchase was completed on 26 January 2018 for a total of 2,986,200 treasury shares against a consideration of 50 million euro.
Issue of a fixed-rate non-convertible bond On 20 March 2017, the Board of Directors of Azimut Holding S.p.A. approved the issue of a fixed-rate non-convertible bond (the “Bond”). The company closed the Bond placement at 350 million euro on 22 March 2017, with a fixed-rate coupon of 2.000% and a five-year duration, maturing on 28 March 2022. The bonds were offered to qualified investors, excluding those in the United States and other selected countries, and are listed on the Luxembourg Stock Exchange. In accordance with the “Use of Proceeds”, the Company may use the proceeds from the Bond for its own operations and to finance potential extraordinary transactions, including the possible repurchase of the Company's equity instruments currently outstanding and/or repay part of the debt or to finance the rescheduling and settlement of the Company's long-term debt, including the repurchase offer related to the subordinated convertible bond named “euro 250,000,000 2.125% Subordinated Convertible Bonds due 2020” issued by the Company in 2013 and maturing in 2020.
Repurchase of the convertible bond “euro 250,000,000 2.125% Subordinated Convertible Bonds due 2020” On 4 April 2017, Azimut Holding S.p.A.'s Board of Directors approved the invitation to the holders of its “euro 250,000,000 2.125% Subordinated Convertible Bonds due 2020” issued in November 2013 through a reverse bookbuilding process, to tender their bonds for purchase by the company. On 5 April 2017, at the Expiry of the Offer, bonds with an aggregate nominal amount of over 248,000,000 euro were validly tendered within the framework of the abovementioned offer, equal to 99.4% of the total nominal amount of the Bonds issued. On the same date, a bondholders' meeting (the "Meeting") was called to amend
22 Gruppo Azimut certain provisions of the Trust Deed and the terms and conditions of the Bonds, and in particular that covering the Issuer's possibility of early redemption. In the meeting held on 8 May 2017 at Azimut Holding S.p.A.'s registered office, the bondholders approved the amendments included in the agenda and, at the same time, Azimut Holding S.p.A. exercised the option for the early redemption of all Bonds still outstanding and not included in the offer. The total amount paid to settle the convertible bond was 279.4 million euro.
Azimut Holding S.p.A. General Shareholders’ Meeting of 27 April 2017 The shareholders’ meeting (both ordinary and extraordinary) of 27 April 2017 resolved the following:
Approval of 2016 financial statements The shareholders’ meeting approved the 2016 financial statements, which included a Parent Company net profit of 161.9 million euro. The shareholders concurrently resolved to pay a dividend of 1 euro per ordinary share, pre-tax, to be paid as of 24 May 2017, 22 May 2017 ex-dividend payment date and 23 May 2017 as the record date. They also approved the payment to Fondazione Azimut Onlus of 1.8 million euro, equal to 1% of pre-tax consolidated profit and the payment of 17,27 euro for each profit-participating financial instrument held by Top Key People at the time of approval of payment of the dividend.
Appointment of Directors The Shareholders were in favour of the appointment of Sergio Albarelli and Alessandro Zambotti as Directors. In their meeting of 27 April 2017, the Board of Directors of Azimut Holding S.p.A. confirmed Sergio Albarelli as Chief Executive Officer and Alessandro Zambotti as the Chief Financial Officer of the Group.
Proposal for purchase and allocation of treasury shares and consequent resolutions Furthermore, the Shareholders approved the purchase, including in one or more tranches, of up to 28,000,000 Azimut Holding S.p.A. ordinary shares, or 19.55% of the current share capital considering the shares already in portfolio upon purchase at a minimum unit price equal to at least the carrying amount of Azimut Holding S.p.A. ordinary shares and a maximum unit price of 50 euro.
Remuneration Report The Shareholders’ Meeting approved the Company policy concerning remuneration of members of the management boards, general managers and key managers, as well as the procedures used to adopt and implement said policy. Furthermore, the Shareholders were in favour of the proposal to increase the ratio between the fixed and variable components of remuneration up to 2:1.
Appointment of a Director On 4 May 2017, Azimut Holding S.p.A.'s Board of Directors co-opted Renata Ricotti onto the Board as independent director, replacing Paola Mungo. With this appointment,
23 Management report of the Azimut Group
the total number of independent directors increases to 4, in line with the code of conduct and in accordance with the gender balance as per Article 147-ter.1-ter of the TUF (Consolidated Law on Finance). Furthermore, based on the declarations provided by the new independent Director and the information available to the company, the Board evaluated, pursuant to Article 144-novies.1-bis of the Issuers’ Regulation, whether the director met the criteria for independence envisaged by Article 147-ter.4 and 148.3 of the Consolidated Law on Finance and Article 3 of the Code of Conduct.
2.1 Repayment of Banco BPM S.p.A. loan Significant events On 30 June 2017, the Parent Company repaid the instalment (Line B) of the loan of the year granted by Banco BPM S.p.A. for a total amount of 10 million euro.
Acquisition of 100% of Azimut Libera Impresa SGR S.p.A. (formerly Futurimpresa SGR S.p.A.) On 1 August 2017, the Parent Company reached an agreement with the Milan, Bergamo, Brescia and Como Chambers of Commerce to acquire the residual 45% of Futurimpresa SGR S.p.A., subsequently renamed Azimut Libera Impresa SGR S.p.A. (“Azimut Libera Impresa”) as of 4 October 2017, an asset management company specialised in the management of alternative investment funds. As a result of this transaction, which is worth approximately 2 million euro, Azimut Libera Impresa is now wholly owned by the Azimut Group. In addition to the Finanza e Sviluppo Impresa private equity fund, Azimut Libera Impresa also includes the Antares AZ I fund, launched in 2016 and specialised in private debt, the IPO Club fund, launched in 2017 and specialised in SPAC and Prebooking Company investments, both supporting Italy’s SMEs.
Covered warrants issue In 2017, the subsidiary Azimut Capital Management Sgr S.p.A. issued some covered warrants in favour of some employees (managers) which grant the right to subscribe the purchase or sale of a specific underlying financial asset at an agreed price and date. These instruments were subscribed at their fair value as per the appraisal report prepared by a leading independent company.
Acquisition of 100% of Augustum Opus SIM Azimut Holding S.p.A.’s purchase of the additional 49% from Augustum Opus SIM’s non-controlling investors was completed on 13 November 2017 for a total consideration of 1.7 million euro. At the same time, the company’s merger by incorporation into Azimut Capital Management Sgr S.p.A. was approved, effective from 1 December 2017.
Long-term incentive plan: the “2015-2019 plan” During the year, the Boards of Directors of Azimut Capital Management Sgr S.p.A. and Azimut Financial Insurance S.p.A. approved the changes to the long-term 2015- 2019 incentive plan reserved to the Group’s financial advisors who have contractual relationship with said companies. The details of the transaction are described in the “Other information” section of the Notes to the consolidated financial statements.
24 Gruppo Azimut Partial demerger and merger by incorporation of Azimut Partecipazioni S.r.l. In 2017, the activities necessary for Azimut Partecipazioni S.r.l.’s partial demerger into Azimut Financial Insurance S.p.A. began pursuant to Article 2506-bis of the Italian Civil Code and the subsequent merger by incorporation of Azimut Partecipazioni S.r.l. into Azimut Capital Management SGR S.p.A. pursuant to Articles 2501-ter and 2505 of the Italian Civil Code. The entire transaction meets the need to simplify and streamline the Group’s corporate structure in Italy, also for the purposes of an effective allocation of costs and revenues. It provides for the allocation of part of the investment held by Azimut Partecipazioni S.r.l. in AZ Fund Management SA (19%) to Azimut Financial Insurance S.p.A. and the subsequent merger of Azimut Partecipazioni S.r.l. into Azimut Capital Management SGR S.p.A. with the transfer of the residual 30% investment in AZ Fund Management SA. The partial demerger became effective on 1 October 2017, while the merger by incorporation of Azimut Partecipazioni S.r.l. into Azimut Capital Management SGR S.p.A. became effective on 1 January 2018. No share exchange ratio was calculated for the partial demerger and the merger and no shares of the Company were allocated to Azimut Partecipazioni S.r.l. shareholders since the Parent Company is the sole share/quotaholder of both companies.
Over its 25 years of activities, in line with market practices and given its size and business, the Azimut Group was subject to ordinary inspections by the Supervisory 2.2 Authorities. In March 2017, as part of an ordinary inspection carried out by the Bank Other significant events of Italy and concluded in 2015, to the extent of its duties, Consob fined some profiles of the year of Azimut Consulenza SIM (now Azimut Capital Management SGR). The Company had already replied to the Supervisory Authorities and implemented the corrective measures to resolve the critical issues identified.
Azimut group's financial performance for 2017 The Azimut Group's consolidated net profit for 2017 amounts to 214,786 thousand euro (172,685 thousand euro in 2016), while consolidated EBIT came to 247,280 thousand euro (185,578 thousand euro in 2016). The performance of the year was also affected by the Group's ongoing expansion which strengthened its presence outside Europe. The Group is comprised of several companies which distribute, manage and promote financial and insurance products in many countries, including Luxembourg, Ireland, China (Hong Kong and Shanghai), Monaco, Switzerland, Singapore, Brazil, Mexico, Taiwan, Chile, Australia, Turkey, the United States and Iran. Through the subsidiary AZ International Holdings SA, a wholly-owned subsidiary incorporated under Luxembourg law to act as an incubator, the Group continued its mission to develop, research, acquire and manage international partnerships. In 2017, 16 companies (8 in 2016) were acquired and the Group's presence was strengthened thanks to the purchase of additional equity investments in previously acquired companies. The recruitment of financial advisors showed a positive balance: in 2017, the Group's network showed 94 new engagements, bringing the total number of advisors to 1,638.
25 Management report of the Azimut Group
Assets Total assets under management at the end of 2017 reached 40.2 billion euro, up by approximately 12% compared to the end of 2016. Total assets, including assets under custody and third parties’ funds, amounted to 50.4 billion euro, up by 16% on 2016.
Figures in millions of euro 31/12/2017 31/12/2016 Change Absolute % Mutual funds 31,717 28,756 2,961 10% Discretionary portfolio management and other 9,454 7,701 1,753 23% AZ Life insurance 6,702 6,434 268 4% Advisory 1,119 869 250 29% Double counting (8,803) (7,960) (843) 11% Total AUM, net 40,189 35,800 4,389 12% Securities, third-party funds and A/C 10,252 7,805 2,447 31% Total assets 50,441 43,605 6,836 16%
Net inflows Group total net inflows were positive at 6.8 billion euro at 31 December 2017, slightly up on 2016 (+4%).
Figures in millions of euro 2017 2016 Change Absolute % Mutual funds 2,113 1,588 525 33% Discretionary portfolio management and other 1,564 1,617 -54 -3% AZ Life insurance 151 333 -182 -55% Advisory 202 239 -37 -16% Double counting 131 -267 398 -149% Total net inflows - Assets under management 4,161 3,510 651 19% Securities, third-party funds and A/C 2,632 3,019 -388 -13% Total net inflows 6,793 6,529 263 4%
Reclassified consolidated In order to provide a more effective representation of the results, the income income statement statement has been reclassified and thus better reflects the content of the items according to operating criteria. The main reclassifications involved the following: • cost recoveries on portfolio management reported under “Fee and commission income” have been reclassified as “Other income” in the reclassified income statement; • net premiums and the corresponding change in the technical reserves, commissions and recovered expenses relating to insurance and investment products issued
26 Gruppo Azimut by AZ Life Dac, reported under “Net premiums”, “Change in technical reserves” and “Fee and commission income”, have been reclassified as “Insurance income”; • commission expenses paid to the distribution network, reported under “Fee and commission expense” are now classed as “Acquisition costs”; similarly, the Enasarco/ Firr contributions related to these commission expenses and the other trade expenses associated with the distribution network, recognised under “Administrative costs”, have been reclassified as “Acquisition costs”; the amount allocated to the supplementary indemnity reserve for agents (ISC) reported under the item “Provisions for risks and charges” has been reclassified as “Acquisition costs”; • administrative cost recoveries, reported under “Other operating income and costs”, were recognised as a reduction of “Overheads/administrative costs”; • interest expense on loans was reported under “Interest expense” in the reclassified income statement.
01/01/2017 01/01/2016 Euro/000 31/12/2017 31/12/2016 Acquisition fees 10,247 9,826 Fixed management fees 606,598 518,866 Variable management fees 136,379 130,770 Other income 8,456 7,611 Insurance income 48,864 38,575 Total income 810,544 705,648 Acquisition costs (337,456) (325,436) Overheads/administrative costs (178,534) (158,984) Amortisation and depreciation/provisions (16,465) (15,920) Total costs (532,455) (500,340) EBIT 278,089 205,308 Net financial income (13,057) (3,033) Net non-recurring costs (8,114) (6,323) Interest expense (9,646) (11,063) Pre-tax profit 247,272 184,889 Income tax (22,854) (19,281) Deferred tax assets/liabilities 1,491 11,696 Net profit 225,909 177,304 Profit attributable to minority interest 11,123 4,619 Group net profit 214,786 172,685
27 Management report of the Azimut Group
Consolidated EBIT and consolidated Group net profit at 31 December 2017 came to 278 million euro (205 million euro at 31 December 2016) and 215 million euro (173 million euro at 31 December 2016), respectively. As at 31 December 2017 assets managed amounted to 40.2 billion euro, up by 4.4 billion euro on 2016 (+12%), generating fixed management fees of 607 million euro, in addition to variable management fees of 136 million euro. The trend of acquisition costs reflects the recruitment of financial advisors and private bankers during the year, in line with the previous year. In 2017, overheads increased on the previous year due to the consolidation of more foreign equity investments and charges related to investments made to keep up with the growth of the Group. The increase in net financial income is mainly due to the charges incurred for the early repayment of the 2013-2020 convertible bond.
Main balance sheet figures
The Group's main balance sheet figures are shown in the table below.
Euro/000 31/12/2017 31/12/2016 Financial assets measured at fair value 6,700,283 6,447,427 Available-for-sale financial assets 286,957 276,963 Receivables and equity investments 265,133 190,240 Tangible and intangible assets 565,513 524,535 Other assets 288,721 288,111 Total assets 8,106,607 7,727,276 Payables and outstanding securities 374,069 254,806 Technical reserves 227,857 251,324 Financial liabilities measured at fair value 6,605,461 6,299,036 Other liabilities and provisions 287,032 277,044 Shareholders’ equity 612,188 645,066 Total liabilities and shareholders’ equity 8,106,607 7,727,276
Financial assets and liabilities measured at fair value rose by approximately 4% on 31 December 2016. These items mainly refer to the insurance activities carried out by AZ Life dac: assets mainly relate to investments in unit-linked policies where the investment risk is borne by policyholders, while liabilities mainly relate to commitments from unit-linked policies classified as investment contracts. "Available-for-sale" financial assets, which mainly reflect the investment of the excess liquidity of operations in UCI units managed by the Group, increased by 4% from 277 million euro to 287 million euro. Cash and cash equivalents with
28 Gruppo Azimut bank current accounts held by Group companies increased from 82 million euro to 158 million euro. Tangible and intangible assets increased as a consequence of the rise in goodwill due to the acquisitions of the year and the increase in intangible assets with a finite useful life due to the investments in software of the year.
The Group's net financial position was 134.9 million euro at 31 December 2017 Consolidated financial (192.3 million euro at 31 December 2016). position
Euro/000 31/12/2017 31/12/2016 A Cash 28 21 B Cash equivalents: 232,441 171,978 Due from banks 157,945 81,759 Due from managed funds 74,496 90,219 C Available-for-sale financial assets 266,218 266,832 D Total cash A+B+C 498,687 438,832 E Short-term receivables - - F Short-term bank loans - - G Current portion of long-term debt: (15,351) (10,575) Bonds (Azimut '13-'20 Convertible) (524) Bonds (Azimut '17-'22 Non-convertible) (5,351) - Due to banks (Banco BPM loan) (10,000) (10,051) H Other short-term financial payables - - I Short-term financial debt F+G+H (15,351) (10,575) J Short-term financial debt (net) I-E-D 483,336 428,257 K Long-term bank loans: (10,000) Due to banks (Banco BPM loan) (10,000) L Bonds (348,465) (225,998) Azimut '13-'20 Convertible Bond (225,998) Azimut '17-'22 Non-convertible Bond (348,465) M Other long-term payables N Long-term financial debt K+L+M (348,465) (235,998) O Net financial position J+N 134,871 192,259
With regard to the methods used to assess net financial position, reference was made to the recommendation issued by CESR (Committee of European Securities Regulators) dated 10 February 2005, and more specifically to the paragraph on “Capitalisation and indebtedness” in chapter II.
29 Management report of the Azimut Group
Receivables and payables include those of a financial nature only, whereas trade receivables and payables have been excluded. Receivables in the form of fees and commissions for managed funds and discretionary portfolios are also included and are considered as cash equivalents given that they are collected by the Group during the first few working days after the reporting date. The results were impacted by the liquidity generated by operations, as well as by 157 million euro for the payment of dividends to shareholders and holders of profit-participating financial instruments and the payment to Fondazione Azimut Onlus of 1.8 million euro made in execution of the Shareholders’ resolution of 27 April 2017. For additional information about the other significant transactions of the year, reference should be made to the section “Significant events of the year”.
Loans raised and repaid The changes in financial debt items during 2017 are shown in the following table: during the year
Euro/000 Interest rate Nominal Expiry amount Currency Nominal Effective
Balance at 01.01.2017 of which: BPN loan - Line B Euro 3 month 3 month 50,000 2018 Euribor +1.25 Euribor +1.25 “Azimut 2013-2020” Subordinated Bond Euro 2.13% 4.91% 250,000 2020
Issues: of which: "Azimut 2017-2022” Bond Euro 2% 2.11% 350,000 2022 "Azimut 2017-2022” Bond Euro 2% 2.00% 5,351 2018
Redemptions of which: BPN loan - Line B Euro 3 month 3 month -10,000 2018 Euribor +1.25 Euribor +1.25 “Azimut 2013-2020” Subordinated Bond Euro 2.50% 3.06% -250,000 2020
As of 27 March 2017, Azimut Holding S.p.A. completed the issue of the 2017-2022 bond (Azimut 2017-2022 2.000%) for a nominal amount of 350 million euro. On 10 May 2017, Azimut Holding S.p.A. carried out the early redemption of the 2013-2020 subordinated convertible bond (Azimut 2013–2020 convertibile
30 Gruppo Azimut subordinato 2.125%), for a consideration of 279 million euro against the recognition of liabilities of roughly 227 million euro at 31 December and the corresponding equity portion of about 35 million euro. The redemption also led to the recognition of a loss of approximately 8 million euro. The instalment of the loan granted by Banco Bpm S.p.A. relating to Line B and totalling 10 million euro was repaid on 30 June 2017.
At 31 December 2017, Azimut Holding S.p.A. subsidiaries did not hold, nor did Treasury shares they hold during the year, any treasury shares or shares of the Parent Company, either directly or via trust companies or third parties. During the year, transactions involving treasury shares led to an increase of 2,926,848 treasury shares for a total of approximately 49 million euro. At 31 December 2017, Azimut Holding S.p.A.’s treasury share portfolio therefore stood at 13,314,037 shares, or 9,294% of share capital. With respect to transactions carried out between the reporting date and the approval date of this report, 1,735,200 treasury shares were purchased for a total of approximately 30 million euro, completing the third tranche of the buy-back disclosed in December 2017 and 2,227,969 treasury shares were used for a total of about 37 million euro, completing the acquisition of 100% of Compagnie de Gestion Privée Monégasque which took place in 2018.
Reconciliation of Azimut Euro/000 Shareholders’ equity of which result at 31/12/2017 for the year Holding S.P.A.'s shareholders' equity and Holding opening balance 575,048 208,842 net profit to consolidated shareholders' equity Adjustments due to changes in calendar year 2,106 and net profit Total Holding shareholders’ equity 577,154 208,842 Adjustments: Results of consolidated companies 387,036 387,036 Subsidiary consolidation effects 115,634 1,258 Azimut Holding S.p.A. dividend cancellation (240,199) (240,200) Cancellation of subsidiaries' dividends (132,066) (132,066) AZ International Holdings SA Group dividend cancellation (7,413) (7,413) Equity accounted investments 1,624 (8) Liabilities measured at fair value (105,165) 429 Tax adjustments (4,009) (3,092) Total Group shareholders’ equity 592,596 214,786 Minority interest 19,592 11,123 Total shareholders’ equity 612,188 225,909
31 Management report of the Azimut Group
Information about main Azimut group companies
The following information is given about the business activities and the financial performance of the companies directly controlled by the parent company in accordance with the Group's accounting policies. • AZ Fund Management SA, 100% owned, carries out mutual fund management activities. During the year, it achieved a profit of 226 million euro compared to a profit of approximately 223 million in 2016. At 31 December 2017, total assets under management stood at approximately 29.8 billion euro. • AZ Life dac, wholly owned, carries out insurance activities. During the year, it achieved a profit of 26 million euro compared to a profit of approximately 21 million in 2016. • Azimut Capital Management SGR S.p.A., wholly owned, manages harmonised Italian funds, pension funds, alternative funds and discretionary funds. The net profit for 2017 amounts to 16 million euro (2016: 27 million euro). On 1 December 2017, it merged Augustum Opus Sim S.p.A. At 31 December 2017, total assets under management stood at approximately 5.9 billion euro, of which 1.5 billion euro related to mutual funds and 4.4 billion euro to discretionary funds. • Azimut Partecipazioni S.r.l., wholly owned, is a holding company focusing on unlisted companies. On 1 October 2017, following the demerger to Azimut Financial Insurance S.p.A., it sold 19% of the investment held in AZ Fund Management SA. On 31 December 2017, Bank of Italy authorised the merger into Azimut Capital Management SGR S.p.A. with effect from 1 January 2018. During the year, it achieved a profit of 93 million euro compared to a profit of 74 million in 2016. • Azimut Financial Insurance S.p.A., wholly owned, carries out insurance mediation, except for reinsurance mediation, and bank products' placement and distribution activities. In 2017, it achieved a profit of 28 million euro compared to a loss of 6 million euro in 2016. • AZ International Holdings SA, wholly owned, is a Luxembourg-based holding company through which the Group continued its research, development, acquisition and management of foreign partnerships. Through this company, the Group is present in 15 countries, including Luxembourg, Ireland, China (Hong Kong and Shanghai), Monaco, Switzerland, Singapore, Brazil, Mexico, Taiwan, Chile, Australia, Turkey, the United States, Dubai and Iran. In 2017, it incurred a loss of 1,353 thousand euro compared to a loss of 1,167 thousand euro in 2016. • Azimut Libera Impresa SGR S.p.A. (formerly Futurimpresa SGR S.p.A.), wholly owned, manages private equity funds. In 2017, it launched the IPO Club fund specialised in SPAC and Prebooking Company investments, supporting Italy’s SMEs. In July 2017, Azimut Holding S.p.A. acquired the additional 45% investment therein. In 2017, it achieved a profit of 675 thousand
32 Gruppo Azimut euro compared to a profit of 244 thousand euro in 2016. • Azimut Enterprises Holding S.r.l., wholly owned, is a holding company focusing on unlisted companies, including Programma 101 Sicaf S.p.A., Siamosoci S.r.l. and Cofircont Compagnia Fiduciaria S.r.l. which contribute to diversifying the Group's business. Programma 101 Sicaf S.p.A. is a venture capital company specialised in early stage investments in the digital sector, while Siamosoci S.r.l. acts as start-up incubator. Cofircont Compagnia Fiduciaria S.r.l. is a fiduciary company. During the year, the company set up Azimut Analitycs S.r.l., paying in 6,000 euro and holding 60% of its quota capital. In 2017, it incurred a loss of 169 thousand euro compared to a loss of 801 thousand euro in 2016. • Azimut Global Counseling S.r.l., wholly owned, provides financial planning consultancy services, in addition to company restructuring, market research and marketing activities, financial information and data collection and processing. In 2017, it incurred a loss of 45 thousand euro compared to a loss of 402 thousand euro in 2016. • Azimut Analitycs S.r.l. was set up on 25 May 2017 by Azimut Enterprises Holding S.r.l. which paid in 6,000 euro and holds 60% of its quota capital. Its main business object is data collection, analysis, mining and management and the conception, creation, development, design and implementation and management, including on behalf of third parties, of information systems and/ or application software. In 2017, it incurred a loss of 158 thousand euro. Specifically, through the subsidiary AZ International Holdings SA, the Azimut Group is pursuing an international growth strategy which mainly translates into partnerships with local operators, the acquisition of majority investments in asset management and/or advisory and distribution companies. The list of AZ International Holdings SA's partnerships is given below, broken down by geographical area:
Europe • Katarsis Capital Advisors SA, wholly owned, which carries out actuarial and financial advisory activities. • Eskatos Capital Management SARL, wholly owned through Katarsis Capital Advisors SA, which carries out fund management activities. • AZ Swiss & Partners, 51% owned, which carries out advisory and assistance activities with respect to investments and vis-à-vis authorised intermediaries and institutional investors. • Compagnie de Gestion Priveè Monegasque, 51% owned, which carries out asset management, financial advisory and order receipt and transmission activities. • CGM Italia SGR S.p.A. 51% owned through Compagnie de Gestion Privée Monégasque, which carries out asset management, order receipt and transmission, placement and advisory activities.
33 Management report of the Azimut Group
Turkey • Azimut Portfoy (formerly AZ Global Portfoy Yonetimi), wholly owned, which carries out asset management activities.
South East Asia • AN Zhong (AZ) IM Limited, wholly owned, which carries out equity investment management activities. • AN Zhong (AZ) IM HK Limited, wholly owned through AN Zhong (AZ) IM Limited, is a financial advisory company based in Hong Kong. • AZ Investment Management, wholly owned through AN Zhong (AZ) IM Limited, is a financial advisory company operating in the Chinese market. • AZ Sinopro Financial Planning Ltd, 51% owned, is a holding company. • AZ Sinopro Insurance Planning Ltd, 51% owned through AZ Sinopro Investment Planning (51% owned, in turn, through AZ Sinopro Financial Planning), is a securities investment consulting enterprise which distributes asset management products in Taiwan. • Athenaeum Ltd, 100% owned, is an independent company based in Singapore which provides advisory services.
Latin America • AZ Brasil Holdings Ltda, wholly owned, is a Brazilian company which carries out equity investment management activities. • AZ Quest Partecipacoe SA, 66% owned through AZ Brasil Holdings Ltda, is a Brazilian independent company which carries out asset management activities. • AZ Quest Investimentos Ltda, 65.37% owned through AZ Brasil Holdings Ltda, is a Brazilian independent company which carries out asset management activities. • AZ Brasil Wealth Management Holding SA (formerly AZ FI Holdings), 95.80% owned by AZ Brasil Holdings Ltda, is an asset management company. • M&O Consultoria Ltda, 95.71% owned through AZ Brasil Holdings Wealth Management Holding SA, is a company operating in the asset and wealth management sectors. • AZ Brasil Wealth Management Ltda, 90.41% owned through AZ Brasil Wealth Management Holding SA, is a company operating in the asset and wealth management sectors. • AZ & Partners BRZ wholly owned through Azimut Brasil Wealth Management Holding SA, is a Brazilian wealth management company specialised in the development of tailor-made investment strategies for Brazilian private investors. • Futurainvest Holding SA, wholly owned through Azimut Brasil Holdings Ltda, is a Brazilian-based holding company. • Azimut Brasil DTVM Ltda, wholly owned through Futurainvest Holding SA, is a financial institution, regulated by Banco Central, which is authorised to distribute financial products.
34 Gruppo Azimut • AZ Mèxico Holdings S.A. de CV, 94.79% owned, is a Mexican holding company. • Mas Fondos SA, 94.79% owned through Profie SA, carries out distribution activities in the asset management sector. • AZ Andes SA, 92% owned, is a Chilean advisory company.
Australia • Next Generation Advisory Pty Ltd, 52.42% owned, is a financial advisory company which acts as the holding company for the investments carried out by the Group in the following financial advisory and asset allocation companies: Eureka Whittaker Macnaught Pty Ltd, Eureka Financial Group Pty Ltd, Pride Advise Pty Ltd, Lifestyle Financial Planning Services Pty Ltd, Financial Lifestyle Partners Pty Ltd, Wise Planners Pty Ltd, Harvest Wealth Pty Ltd, Pride Financial Pty Ltd, Domane Financial Advisers Pty Ltd, RI Toowoomba Pty Ltd, Empowered Financial Partners Pty Ltd, Wealthwise Pty Ltd, Priority Advisory Group Pty Ltd, Sterling Planners Pty Ltd, Logiro Unchartered Pty Ltd, Aspire Pty Ltd e On-Track Financial Solutions Pty Ltd, Pride SMSF PTY Ltd, Priority Advisory Trust Pty Ltd, Priority Lifestile Advice Pty Ltd, Peters & Partners PTY Ltd, Menico Tuck Parrish Financial Solution Pty Ltd, AZ Next Generation Accounting PTY Ltd, Wealthmed Australia Pty Ltd, Wealthmed Accounting Pty Ltd, Wealthmed Property Pty Ltd, Wealthmed Financial Planning Pty Ltd, Farrow Hughes Mulcahy Financial Services Pty Ltd, H&H Wealth Management Pty Ltd, Menico Tuck Parish Pty Ltd, Henderson Maxwel No.2 Pty Ltd, Henderson Maxwell Financial Planning Pty Ltd, Henderson Maxwell Accounting Pty Ltd, Hurwitz Geller Pty Ltd, Dunsford Financial Plannings Pty Ltd. • AZ Sestante (formerly Ironbark), directly controlled by AZ International Holdings SA which owns 100% thereof (the option to increase to 100% the investment in AZ Sestante was exercised in 2017), acts as a trustee and manager of mutual funds in Australia. The company was set up to launch and offer funds locally.
United States • AZ US Holdings LLC was incorporated by AZ International Holdings S.A. In 2016 and is wholly owned by it. AZ US Holdings LLC set up, in turn, AZ Apice Capital Management Ltd in which it holds a 70% equity investment. This company, in the start-up phase, carries out financial planning and portfolio management activities for non-resident US citizens.
Dubai • AZ New Horizon Ltd is directly controlled by AZ International Holdings SA which owns 80% thereof. The company allows to operate locally through a “class 3” license granted by the Dubai Financial Services Authority (“DFSA”). Consequently, it offers a wide range of financial services, including collective investment plans, discretionary portfolios and financial advisory.
35 Management report of the Azimut Group
Key risks and uncertainties
Key risks For the purposes of risk monitoring, the Group has identified the key risks as follows:
Strategic risk Strategic risk is defined as a current or potential risk of a reduction in earnings or capital as a result of changes in operations or of incorrect, inadequate decision- making and failure to respond to the competitive scenario. This risk depends firstly on the profitability profile generated by the sale of services and products by financial advisors, by the management of funds and by incorrect or imprudent evaluation of market trends in terms of customers and products to be placed. Sales activity is monitored through reports on the sales performance by geographic area and by financial products sold. Financial advisors and their respective Managing Directors (financial advisors responsible for coordinating specific areas of the country) also meet regularly to keep track of the market situation and take the relevant steps to preserve the competitiveness of each geographic area. Finally, market research and analysis by the research and marketing department are used to compare results to those of Azimut’s competitors and monitor the performance of funds. The periodic reporting of the results achieved, specifically about the financial position and results of operations, plays a fundamental role in monitoring the impact of the strategic decisions taken by governance bodies, identifying any necessary corrective measures.
The Group’s companies mainly recruit financial advisors with years of experience Sales network risks in the field, gained while working for rival companies or in bank retail services. The process of recruiting individual financial advisors is strict and involves both local branches and the marketing departments of the Group. Moreover, in addition to past experience, qualifications and references gained on the market are also considered. In the case of the subsidiary Azimut Capital Management, its horizontal structure requires that financial advisors are able to perform their jobs autonomously: by focusing on this aspect during recruitment, the company tends to avoid choosing inexperienced candidates. In order to limit the risks arising from any fraudulent action taken by financial advisors in the performance of their duties, the Group purposely entered into insurance policies against loyalty risks and professional liability insurance for the financial advisors themselves (with the maximum annual claims deemed adequate for said advisors to operate). Finally, the marketing department works closely with the Internal Audit department to share the information required to monitor the conduct of individual financial advisors. Internal control over financial advisors is based on the identification and analysis of possible irregularities in remote monitoring and inspections at financial advisors'
36 Gruppo Azimut offices. These controls are carried out also to check compliance with presentation criteria, correct keeping of archives and fulfilments vis-à-vis the body in charge of the Financial Advisors' register. Should any irregularity be detected, or in case of non-compliance with the code of conduct, the financial advisors directly involved or their managers are asked to prepare a specific report to give explanations or to take adequate measures.
Operational risk is related to potential losses due to inadequate or defective Operational risk aspects of procedure, human resources, internal processes, or external events. As well as being generally evaluated in quantitative terms, monitored and mitigated in accordance with current regulations, this risk is also subject to qualitative assessment for the individual Group companies. Therefore, the Group uses a process to identify and assess the operational risks based on Risk Self-Assessment methods, which take account of the frequency and severity of identified risk events. This procedure allows the companies to establish appropriate control and monitoring techniques, i.e. measures to limit the negative effects of any adverse conditions to which the Group is exposed. Given the presence of this type of risk, the Group has established the following measures to monitor and limit the effects: • mapping of main company procedures, by means of an analysis of existing procedures and interviews with the managers of the various departments; • identifying the significant risks within the mapped procedures; • evaluation of control measures (primary or secondary level) in respect of risk areas, highlighting any unmonitored situations; • defining and implementing a reporting system via the Internal Control and Risk Management Committee, in order to report the final results on the unmonitored risks and any action taken.
The administrative and IT activities of the Italian operating companies of the Outsourcing risks Group are outsourced. When the contracts with Objectway Financial Software S.p.A. and Deloitte Enterprise Risk Service S.r.l. (the Group’s main outsourcers) were signed, establishing the method used in the performance of the outsourced services, purposely created service level agreements (SLA) were also drawn up to guarantee the adequacy of the services provided and allow group Companies to take action against the supplier in the event of any economic losses arising from problems in the supply of these services. Another measure to ensure that services are performed correctly was the creation of an Operating Committee, whose members come from both the Group’s operating companies affected by the agreement and the supplier company, to establish the procedures, define the timescales, and monitor the correct execution of all services
37 Management report of the Azimut Group
provided. The committee meets at least once a month and the participants are provided with a copy of the minutes of the meeting afterwards.
Reputational risk Reputational risk originates from risk factors such as compliance, strategy, outsourcing and other specific variables such as the public scenario, significance of the trademark and company image, exposure to external communication processes. In order to limit this type of risk, a series of procedures has been put in place aimed at minimising both its cause and effect, the most important aspects being: • complaints received by Group companies are monitored constantly, so as to analyse any problems caused by management activities, consultancies, placement and distribution activities and/or operating errors and the effects that these may have on the company’s reputation; • a mapping of corporate risks of all Group companies is constantly updated, in order to identify which departments, procedures and activities are most subject to reputational risks; • the monitoring of the Internal Control and Risk Management Committee, where the presence of managers allows for top-down management of action to be taken to limit reputational risks or respond to any events caused by them; • the Marketing and Investor Relations departments, centralised at Group level, have sole responsibility for dealing with public relations/external communications and the company’s image; • an Internal Code of Conduct governs the treatment of any action that gives rise to conflicts of interest, cases of insider trading or market abuse and any penalties as a result of failure to comply with such regulations. In accordance with the regulations for the treatment of privileged information pursuant to Article 115-bis of Italian Legislative Decree No. 58/98 (TUF - Consolidated Law on Finance), Azimut Holding S.p.A. established a register for the management of such information, for itself and on the behalf of its subsidiaries, by creating a database with the technical/operating features required to guarantee that logical and physical security requirements are met, records cannot be changed and that information is easily accessible.
Compliance risk Compliance risk is related to legal and administrative sanctions, significant financial losses or damage to reputation as a result of non-compliance with laws and regulations or internal procedures (e.g. by-laws, codes of conduct, corporate governance codes). Given that all levels of the company are exposed to this risk, limiting its effects mainly involves ensuring that personnel take adequate responsibility in the performance of their work by complying with the internal code of conduct, code of ethics and procedure manual. The Compliance function, centralised within Azimut Holding S.p.A., ensures
38 Gruppo Azimut that internal procedures are in line with the objective to prevent any breaches of current law or internal regulations. In more detail, the Compliance department: • proposes any organisational and procedural changes to ensure adequate protection against any identified risks of non-compliance; • submits a report to all relevant bodies, including the Supervisory Body (pursuant to Italian Legislative Decree No. 231/2001), the Board of Statutory Auditors, the Internal Control and Risk Management Committee; • controls the efficiency of organisational changes (structures, processes, procedures); • constantly monitors any changes to regulations governing the investment service sector, and circulates the relevant information to all parties concerned.
As regards financial risks, proprietary trading by Group companies is exposed to Financial risks market risks. Moreover, the financial instruments in question are easily liquidated and are monitored closely, most being flexible and money market mutual fund units managed by the Group companies. As for credit risk, there are no specific problems given the nature of the Group’s activity.
Liquidity risk arises when the company is unable to gain access, under reasonable Liquidity risk economic conditions, to the financial resources required to ensure its efficiency. The main factors that determine liquidity levels are the resources provided from or used by administrative and investment activities, as well as loan expiry and renewal or liquidity of investments and market conditions. The Group has no liquidity issues. In order to mitigate this risk, it adopted a policy for the optimisation of financial resources management. Specifically, the Group maintains an adequate level of liquidity available thanks to constant cash flow generation and by monitoring forecast needs based on financial planning.
Key uncertainties The uncertainties to which the Group is exposed derive from the specific nature of its core business, particularly as far as the strict correlation is concerned between income and certain types of fee items, the performance of which is determined by the results generated by the management of listed products and the performance in terms of capital inflow. The generation of these revenues and their amount are by nature volatile and heavily influenced by any fund return and the risk appetite of the customers during the period considered. These factors are, in turn, affected by the performance of reference markets and, more generally, of the national and international economies. There is therefore a risk that Group's revenues and operating results may be negatively affected by prolonged financial market crises.
39 Management report of the Azimut Group
Related-party transactions
Pursuant to Consob Regulation on Related parties1, on 22 November 2010, the Board of Directors of Azimut Holding S.p.A. approved the procedures that ensure transparency and fairness of related party transactions (“Related Party Transaction Procedure” available on Azimut’s website at www.azimut-group.com). With reference to paragraph 8 of Article 5 of the Consob regulation on periodic disclosure of related party transactions, the Group did not engage in any “significant” transactions during 2016. No other atypical or unusual transactions were performed. Disclosures on other related party transactions are provided in paragraph “Related Party Transactions” in Part D, Section 5 of the Notes to the consolidated financial statements.
Related-party transactions
Pursuant to Consob Regulation on Related parties1, on 22 November 2010 the Board of Directors of Azimut Holding S.p.A. approved the procedures that ensure transparency and fairness of related-party transactions (“Related-Party Transaction Procedure” available on Azimut’s website at www.azimut-group.com). With reference to paragraph 8 of Article 5 of the Consob Regulation on periodic disclosure of related-party transactions, the Group did not engage in any “significant” transactions during 2017. No other atypical or unusual transactions were performed. Disclosures on other related-party transactions are provided in paragraph “Related- Party Transactions” in Part D, Section 5 of the Notes to the consolidated financial statements.
Organisational structure and corporate governance
Azimut Holding S.p.A. complies with corporate governance regulations in force in Italy. Moreover, the corporate governance structure partially reflects the recommendations contained in the Code of Conduct for Listed Companies published by Borsa Italiana. For more information reference should be made to the attached Report on corporate governance and ownership structure prepared pursuant to Article 123-bis of the Consolidated Law on Finance (TUF). Azimut Holding S.p.A. has established a risk management and internal control system over financial reporting, using as a reference the “COSO Report”, under which the Internal Control in the broadest sense is “a process effected by an entity's Board of Directors, management and other personnel, designed to provide
1 Consob resolution No. 17221 of 12 March 2010 as subsequently amended.
40 Gruppo Azimut reasonable assurance regarding the achievement of objectives”; specifically, the objective of reliable financial reporting. The key characteristics of the risk management and internal control system over financial reporting are described in the Report on corporate governance and ownership structure.
Human resources
At 31 December 2017, Group personnel amounted to 830 employees, broken down as follows:
Position 2017 2016 Managers 157 93 Middle managers 153 143 Office staff 520 345 Total 830 581
The increase in the number of employees at 31 December 2017 over the previous year mainly reflects the consolidation of recently acquired companies.
Research and development activities
The research and development activities undertaken by the Azimut Group focus exclusively on the “research” of investment instruments and services and on the sale of these products. The Group is constantly committed to designing and implementing investment tools that meet the increasingly sophisticated needs of current and potential customers (see also the section on “Significant events of the year”).
Significant events after the reporting date
The main events that occurred after 31 December 2017, the reporting date of the consolidated financial statements, until 8 March 2018, the date on which the Board of Directors approved the draft financial statements, are as follows: • On 1 January 2018, Azimut Partecipazioni S.r.l. merged into Azimut Capital Management SGR S.p.A. • The closing of the transaction envisaging the acquisition of SDB Financial Solutions SA took place on 8 January 2018. • The purchase of the additional tranche of treasury shares, approved by the company’s Board of Directors on 12 December 2017, was completed on 26 January 2018, based
41 Management report of the Azimut Group
on the authorisation issued pursuant to Article 2357 of the Italian Civil Code by the shareholders in their meeting of 27 April 2017. In January 2018, 1,735,200 treasury shares were purchased, for a total of 30 million euro. • In January and February 2018, the Company made a capital injection of 4 million euro to increase the share capital of the subsidiary AZ International Holdings SA. • The acquisition of the additional 49% of Compagnie de Gestion Privée Monégasque SAM was completed on 31 January 2018. • On 20 February 2018, Azimut Holding S.p.A., through the subsidiary Azimut Capital Management SGR S.p.A. (“Azimut SGR”), entered into an agreement with Sofia Gestione del Patrimonio SGR S.p.A. under extraordinary administration (“Sofia SGR”) and Sofia Partners S.p.A. (“Sofia Partners”), as the majority shareholder of Sofia SGR, whereby Azimut SGR acquires Sofia SGR’s assets (the “Business Unit”). The Business Unit will mainly provide the following services: (i) collective portfolio management, (ii) investment portfolio individual management on behalf of third parties, (iii) discretionary management arrangements assigned by parties providing investment portfolio management services and Italian and/or foreign UCI and (iv) consultancies for investments in financial instruments. By purchasing the Business Unit, Azimut Capital Management SGR will take over, inter alia, four open-ended mutual funds set up, promoted and currently managed by Sofia SGR, and will increase its network by adding Sofia SGR’s 47 financial advisors who, at 31 December 2017, were in charge of assets under management worth approximately 800 million euro. Concurrently with the Business Unit’s transfer, Azimut Capital Management SGR will pay Sofia SGR a base consideration of 3 million euro and, after 24 months, the residual amount, if any, of the variable portion of the price to be calculated based on the performance of the assets under management transferred to Azimut Capital Management SGR and their net profitability. Under the agreement, Azimut Capital Management SGR will obtain a series of representations and guarantees on the Business Unit's risks until its transfer, which are typical for similar transactions. The completion of this transaction also depends on obtaining of Bank of Italy’s necessary authorisations, approvals and/or clearances.
Business outlook
Given the positive results of the subsidiaries in early months of the year, consolidated performance is expected to be positive this year. This year’s financial position and results of operations will also be affected by financial market trends.
42 Gruppo Azimut Non-financial disclosure
This document is Azimut Group’s first Non-financial Disclosure (the “Disclosure”) Methodology prepared pursuant to Italian Legislative Decree No. 254 of 30 December 2016. The reporting scope comprises Azimut Holding S.p.A. and its subsidiaries and companies consolidated on a line-by-line basis at 31 December 2017, net of the following companies which are excluded from the consolidation scope: • AZ Andes S.p.A. - Chile • AZ US Holding Inc. - USA • AZ Apice Capital Management LLC - USA • An Zhong (AZ) IM - Hong Kong • An Zhong (AZ) IM HK - Hong Kong • An Zhong (AZ) IM HK - Shanghai • AZ Sinopro Financial Planning Ltd - Taiwan • AZ Sinopro Investment Planning Ltd - Taiwan • AZ Sinopro Insurance Planning Ltd - Taiwan • Atheneaum Ltd - Singapore • New Horizon Capital Management Ltd - United Arab Emirates - acquired (80%) in June 2017, with effect from 1 July 2017
These companies have been excluded from the Disclosure’s reporting scope given their poor relevance in terms of assets under management and number of employees. These limitations do not affect the presentation of the Group’s results and business pursuant to Italian Legislative Decree No. 254/2016. The reporting scope is consistent with the above, unless subject to further restrictions for some data and information, explicitly indicated in the document. The ownership structure is unchanged in terms of scope and reporting period. The Disclosure describes the non-financial information that was considered material for the Group, its business model and how it creates and maintains the value generated by its services in the medium and long term. All Corporate functions participated in the process to identify stakeholders, in the definition of material topics and in the drafting of the Disclosure. The results were consolidated by the relevant internal Work Group and subsequently validated by Top Management. With respect to environmental figures, although this topic is not relevant to the Business Model and the current strategies, the Group has reported on these figures for the first time only to the extent of Azimut Holding S.p.A. and it committed to considering expanding the reporting scope on this topic in the next few years. Finally, the information about Fondazione Azimut, an entity not included in the Group’s consolidation scope, is a quality aspect necessary to understand the focus on the social framework although it does not form part of the consolidation scope of the Disclosure’s quantitative information. The data and the information provided cover 2017 (from 1 January to 31 December 2017). In order to provide a comparison and a description of the changes, 2016 data and information are also provided, where available.
43 Management report of the Azimut Group
The elements necessary to understand the performance for the two years are included in specific notes within the document. The following GRI standards were considered when preparing the Disclosure in order to define the content and the quality of the document: Stakeholder Inclusiveness, Sustainability Context, Materiality, Completeness, Balance, Comparability, Accuracy, Timeliness, Clarity and Reliability, as per GRI 101: Foundation 2016 Standard. The document does not intend to comply with the Sustainability Reporting Standards issued by the Global Reporting Initiative (“GRI”) under the Core or the Comprehensive option. Rather, it is based on these Standards, using the GRI-Referenced claims.
Specifically, reference was made to the following GRI Standards:
Reference chapter/ GRI-Referenced GRI-Referenced Notes paragraph Topic-Specific Topic-Specific Disclosure Standards (2016) Methodology This content refers to Disclosure 102-50: - GRI 102: General Reporting period Disclosures Disclosure 102-52: - Reporting cycle Disclosure 102-53: - Contact point for questions regarding the report Disclosure 102-56: - External assurance Business Model This content refers to Disclosure 102-2: - GRI 102: General Activities, brands, Disclosures products, and services Disclosure 102-6: Reporting on the requirements Markets served under point a.i. (“Markets served, including the geographical locations where products and services are offered”). The Group’s stakeholders This content refers to Disclosure 102-13: - GRI 102: General Membership of associations Disclosures Disclosure 102-40: - List of stakeholder groups Disclosure 102-42: - Identifying and selecting stakeholders Disclosure 102-43: - Approach to stakeholder engagement
44 Gruppo Azimut Material non-financial This content refers to Disclosure 102-47: - topics GRI 102: General List of material topics Disclosures Governance and This content refers to Disclosure 102-5: - business ethics GRI 102: General Ownership and legal form Disclosures Disclosure 102-18: - Governance structure Disclosure 102-17: - Mechanisms for advice and concerns about ethics This content refers to Disclosure 418-1: - GRI 418: Customer Complaints regarding losses Privacy and GRI 103 of customer data Management Approach Personnel size - employees This content refers to Disclosure 102-16: - and financial advisors GRI 102: General Values, principles, standards, Disclosures and norms of behaviour Disclosure 102-7: Reporting on the requirements Scale of the organization under point a.i (“Scale of the organization, including: total employees”) Disclosure 102-8: Reporting on the requirements Information on employees under point a. (“Total and other workers employees by employment contract (permanent and temporary), by gender”) and point c. (“Total employees by employment type (full-time and part-time), by gender”) This content refers to Disclosure 401-1: Reporting on the requirements GRI 401: Employment Total number and new under point a. (“Total number and GRI 103: employee hires and and new employee hires Management Approach employee turnover by age, during the reporting period, by gender and geographical area age, gender and geographical Disclosure 103-1; 103-2 area”) and point b. (“Total of the management approach number and new employee turnover during the reporting period, by age, gender and geographical area”) in absolute values and not as a percentage, excluding the geographical area
45 Management report of the Azimut Group
This content refers to Disclosure 405-1: Reporting on the GRI 405: Diversity Diversity of governance requirements under point b.i and Equal Opportunity bodies and employees (“Percentage of employees and GRI 103: Disclosure 103-1; 103-2 by employment contract Management Approach of the management approach and gender”) and point b.ii (Percentage of employees by employment contract and age”) in absolute values and not as a percentage The social side - This content refers to Disclosure 102-12: See Fondazione Azimut’s Customers and local GRI 102: General External initiatives activities communities Disclosures Disclosure 102-43: See customer satisfaction Approach to stakeholder initiatives engagement The environmental side This content refers to Disclosure 302-1: Reporting on the GRI 302: Energy Energy consumption requirements under point e. within the organization (“Total energy consumption within the organization”) in MWh. GRI 103: Management Approach omitted since the topic is immaterial
In order to collect the information necessary for the Disclosure’s reporting scope, the Work Group used data collection sheets which were distributed to the heads of the corporate functions involved. The data about Italy were provided by the Corporate functions, while those related to each country were collected under the responsibility of each Country Manager. They were subsequently processed and checked by the heads of the Corporate functions. Since 2017 is the first reporting year, the processes underlying the collection and the calculation of non-financial data and information will be fine-tuned and strengthened over the next few years. This document was approved by Azimut Holding S.p.A.’s Board of Directors.
1. Business Model With a portfolio (assets under management and custody) worth over 50 billion euro, Azimut is Italy’s main independent Group operating in the asset management sector since 1989. The Parent Company, Azimut Holding S.p.A., has been listed on the Milan stock exchange since 7 July 2004 (AZM.IM) and is included, inter alia, in the FTSE MIB and the Euro Stoxx 600 indices. The Group is comprised of many companies which distribute, manage and promote financial and insurance products in Italy, Luxembourg, Ireland, China (Hong Kong and Shanghai), Monaco, Switzerland, Singapore, Brazil, Mexico,
46 Gruppo Azimut Taiwan, Chile, the United States, Australia, Turkey and the United Arab Emirates. Furthermore, in 2017, the Group signed an agreement to acquire 20% of Mofid Entekhab, Iran’s largest independent asset management company.
Azimut Holding (Listed: AZM.IM) Life insurance Asset Management Distribution Inv. Banking & Alternative Ireland Italy Italy Italy Ireland Turkey Switzerland Switzerland UAE UAE
EMEA Luxembourg Iran Monaco Monaco Turkey Iran Hong Kong Hong Kong Singapore Singapore
Asia China Taiwan Pacific Australia Australia Brazil Brazil Mexico Mexico Chile
Americas USA
In Italy, Azimut Capital Management SGR S.p.A. promotes and manages Italian mutual funds, Italian alternative investment funds and provides investment portfolio individual management services on behalf of third parties. Furthermore, as of 1 October 2016, following the demerger and merger of Azimut Consulenza SIM S.p.A., Azimut Capital Management has distributed the Group’s and third parties’ products through its network of financial advisors, while Azimut Financial Insurance S.p.A. has placed insurance and banking products. Azimut Global Counseling provides corporate consultancy services, while LiberaImpresa SGR S.p.A. is specialised in the management of alternative funds. The main foreign companies are AZ Fund Management SA (founded in Luxembourg in 1999), which manages the AZ Fund 1 and AZ Multi Asset umbrella funds, and the Irish- based AZ Life DAC, which provides life insurance products. The Group was set up and developed based on some distinctive features which contributed significantly to its success:
47 Management report of the Azimut Group
A unique business model based on long-term value creation
We are totally A highly integrated independent of bank, Integrated business model insurance or Independence business ensures a correct asset industrial groups. allocation approach This enables us to model which meets customers’ operate freely. expectations about risks/returns.
1,600 people, including Our business model management, managers, is a new reference financial advisors and point for the industry, Alignment employees, are Innovation thanks to the launch long-term shareholders, of interests of innovative funds. who focus on creating value for stakeholders.
Independence Azimut is wholly independent of banks, insurance companies or industrial groups, ensuring free operations. With a float equal to approximately 75% of capital, the Group’s Holding Company is one of the few real public companies in the Italian stock exchange.
Integration The Group’s core activities (management and distribution) operate in strict synergy to respond in a coordinated manner to customers’ needs. Product design, management and consultancy are part of the same process whose definitive goal is customer satisfaction. Brazil Ireland Australia Chile Italy China Involvement Mexico Iran* Hong Kong Most financial advisors, employees and managers (1600 at 2017 year end) are also the USA Luxembourg Singapore Monaco Taiwan Parent Company’s shareholders, with a 15% investment therein. In accordance with a Switzerland Shareholders’ Agreement, shareholders/collaborators are fundamental in ensuring the Asset Management Turkey Group’s driving stability and the alignment of interests among all stakeholders. This Distribution UAE significant involvement of staff in the control of the companies for which they work is almost unique in Italy’s financial sector.
Internationalisation Again with a view to diversification and development, an expansion strategy began in 2010 in geographical areas which could be of interest in many respects. In these areas, Azimut identified local partners with the same characteristics as the Group (independence, professionalism, expertise) and built a network of companies to place the products of the Parent Company and/or its product companies, while providing the Group with management skills in specific markets. This resulted in a management team made up of 90 managers and analysts, based in 14 countries and 4 continents, therefore active around the clock and able to monitor over 1,300 companies which may become the object of investment. The average seniority of the team members is 16 years.
48 Gruppo Azimut Asset management companies and distribution in 17 countries in the world
Brazil Ireland Australia Chile Italy China Mexico Iran* Hong Kong USA Luxembourg Singapore Monaco Taiwan Switzerland Asset Management Turkey Distribution UAE
Innovation The commitment to provide customers with appealing investment instruments not yet available on the market has characterised Azimut’s entire history with the launch of many types of unique funds. Product innovation has always been present in the company’s business, with the launch of several tactical and strategic products which met the needs of different types of domestic and international customers. The development abroad further stimulated the Group’s drive for innovation. This is confirmed, for example, by AZ Fund 1 Renminbi Opportunities, the world’s largest UCITS IV fund specialised in investments in Off-shore Renminbi and AZ Fund 1 Cat Bond, which invests in instruments exposed to catastrophe insurance risks, launched in 2011, after the acquisitions in China and Switzerland, typical for investors with a high risk profile. In autumn 2013, the implementation of the Group development strategy
49 Management report of the Azimut Group
abroad also led to the launch of AZ Multi Asset Global Sukuk, a UCITS IV-compliant product which invests in an emerging asset class, the sukuk (bonds which generate pre- determined profits according to the principles of Shariah), which configure a new type of fixed income instruments. In the 2016/2017 two-year period, Azimut also launched, inter alia, some extremely innovative products: • AZ Multi Asset Sustainable Equity Trend - part of the AZ Multi Asset mutual fund, with an investment policy focused on issuers adopting the ESG (Environmental, Social and Governance) sustainability standards. With respect to the AZ Multi Asset Sustainable Equity Trend fund, AZ Fund Management’s investment process provides for the identification (assisted by Vontobel AM acting as the advisor) of a basket of ESG sustainable equities, followed by the manager's selection of those to be invested in. In other cases, the manager chooses the financial instrument to be included in the sub-fund’s portfolio and subsequently asks the advisor to check the sustainability of the investment, using ESG criteria. • Munis Yield - a sub-fund of the Luxembourg fund AZ Fund 1 which mainly invests in US municipal bonds and/or US treasuries. • Global Infrastructure - a sub-fund of the Luxembourg fund AZ Fund 1 which mainly invests in securities issued by global companies which own and/or manage infrastructural activities, such as utilities (water, electricity, gas, waste collection), transport and storage of raw materials, toll roads, airports, telecommunications, ports, railway networks and other socio-economic infrastructures. This instrument provides individual savers with a type of management that is usually reserved to institutional investors.
50 Gruppo Azimut Full product range, with a focus on innovation and performance
Italian Trend ormula apan European Trend Commodity Champion